BILL NUMBER: SB 579 AMENDED
BILL TEXT
AMENDED IN SENATE MAY 3, 1999
INTRODUCED BY Senator Dunn
FEBRUARY 23, 1999
An act to amend Section 22330 Sections
22203, 22251, 22305, 22330, and 22551 of the Financial Code,
relating to finance lenders.
LEGISLATIVE COUNSEL'S DIGEST
SB 579, as amended, Dunn. Finance lenders.
The California Finance Lenders Law provides for licensing and
regulation by the Commissioner of Corporations of persons engaged in
the business of making consumer or commercial loans. Under these
provisions, a licensee licensed lender
generally may not take a deed of trust, mortgage, or lien upon real
property as security for a consumer loan if the principal
amount of the loan is less than $5,000.
This bill would provide that a licensee
licensed lender may not take a deed of trust, mortgage, or lien
upon real property as security for a consumer loan
except if the loan is for a bona fide principal
amount of the loan is less than $5,000 or
more . This bill would define "bona fide principal amount"
for the purpose of determining whether a consumer or commercial loan
amount exceeds a regulatory ceiling, as specified.
This bill would make other related changes.
Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 22330 of the Financial Code is
SECTION 1. Section 22203 of the Financial Code is amended to read:
22203. "Consumer loan" means a loan, whether secured by either
real or personal property, or both, or unsecured, the proceeds of
which are intended by the borrower for use primarily for personal,
family, or household purposes. For purposes of determining whether a
loan is a consumer loan, the lender may rely on any written
statement of intended purposes signed by the borrower. The statement
may be a separate statement signed by the borrower, or may be
contained in a loan application or other document signed by the
borrower. The lender shall not be required to ascertain that the
proceeds of the loan are used in accordance with the statement of
intended purposes. Nothing in this section shall authorize the taking
of real property as security if the principal of the loan
amount is less than five thousand dollars ($5,000) ,
except as specified in Section 22330 .
SEC. 2. Section 22251 of the Financial Code is amended to read:
22251. Any section that refers to this section does not apply to
any loan of the bona fide principal amount specified in the
regulatory ceiling provision of that section or more if that
provision is not used for the purpose of evading this division. In
determining under Section 22250, 22303, or 22304 or any section that
refers to this section whether a loan is a loan of a bona fide
principal amount of the amount specified in that section or more and
whether the regulatory ceiling provision of that section is used for
the purpose of evading this division, the following principles apply:
(a) If a borrower applies for a loan in a bona fide
principal amount of less than the specified amount and a loan to that
borrower of a bona fide principal amount of the specified
amount or more if made by a licensed finance lender, no adequate
economic reason for the increase in the size of the loan exists, and
by prearrangement or understanding between the borrower and the
licensee a substantial payment is to be made upon the loan with the
effect of reducing the bona fide principal amount of the
loan to less than the specified amount within a short time after the
making of the loan other than by reason of a requirement that the
loan be paid in substantially equal periodical installments, then the
loan shall not be deemed to be a loan of the bona fide principal
amount of the specified amount or more and the regulatory ceiling
provisions shall be deemed to be used for the purpose of evading this
division unless the loan complies with the other provisions of the
section that includes the regulatory ceiling provisions.
(b) If a loan made by a licensed finance lender is in a bona
fide principal amount of the specified amount or more, the fact
that the transaction is in the form of a sale of accounts, chattel
paper, goods, or instruments or a lease of goods, or in the form of
an advance on the purchase price of any of the foregoing, shall not
be deemed to affect the loan or the bona fides of the amount thereof
or to indicate that the regulatory ceiling provisions are used for
the purpose of evading this division.
(c) For the purposes of determining whether the loan amount
exceeds a regulatory ceiling, the "bona fide principal amount" shall
not be comprised of any charges or any other fees or recompense
specified in Sections 22200, 22201, 22202, 22305, 22316, 22317,
22318, 22319, 22320, 22320.5, and 22336. This section is intended to
clarify the meaning of "bona fide principal amount" as used in this
division solely for the purpose of determining whether the loan
amount exceeds a regulatory ceiling, and is not intended to affect
the meaning of "principal" for any other purpose.
SEC. 3. Section 22305 of the Financial Code is amended to read:
22305. In addition to the charges authorized by Section 22303 or
22304, a licensee may contract for and receive an administrative fee,
which shall be fully earned immediately upon making the loan, with
respect to a loan of a bona fide principal amount of not
more than two thousand five hundred dollars ($2,500) at a rate not in
excess of 5 percent of the bona fide principal amount or
fifty dollars ($50), whichever is less, and with respect to a loan of
a bona fide principal amount in excess of two thousand
five hundred dollars ($2,500), at an amount not to exceed
seventy-five dollars ($75). No administrative fee may be contracted
for or received in connection with the refinancing of a loan unless
at least one year has elapsed since the receipt of a previous
administrative fee paid by the borrower. Only one administrative fee
may be contracted for or received until the loan has been repaid in
full. For purposes of this section, "bona fide principal amount"
shall be determined in accordance with Section 22251.
SEC. 4. Section 22330 of the Financial Code is amended to read:
22330. No licensee shall take a deed of trust, mortgage, or lien
upon real property as security for any loan of a principal
amount of less than five thousand dollars ($5,000) made
under this division, except any lien as is created by law upon the
recording of an abstract of judgment. This section shall not
apply to any loan of a bona fide principal amount of five thousand
dollars ($5,000) or more as determined in accordance with Section
22251.
SEC. 5. Section 22551 of the Financial Code is amended to read:
22551. In determining whether a loan is a loan of a bona fide
principal amount of the specified amount or more, the following
principles shall apply:
(a) If a borrower applies for a loan in a bona fide
principal amount of less than the specified amount and a loan to that
borrower of a bona fide principal amount of the specified
amount or more is made by a licensed finance lender, no adequate
economic reason for the increase in the size of the loan exists, and
by prearrangement or understanding between the borrower and the
licensee a substantial payment is to be made upon the loan with the
effect of reducing the bona fide principal amount of the
loan to less than the specified amount within a short time after the
making of the loan other than by reason of a requirement that the
loan be paid in substantially equal periodical installments, then the
loan shall not be deemed to be a loan of the bona fide principal
amount of the specified amount or more.
(b) A subsequent advance of money of less than a bona fide
principal amount of the specified amount pursuant to a
revolving or open-end loan agreement or similar agreement between a
borrower and a licensed finance lender which gives the borrower the
right to draw upon all or any part of the line of credit, or a loan
agreement providing for the making of advances to the borrower from
time to time up to an aggregate maximum amount which gives the
borrower the right to draw all or any part of the total amount, shall
be deemed to be a loan of a bona fide principal amount of
the specified amount or more if the line of credit or the aggregate
maximum amount is a bona fide principal amount of the
specified amount or more and the initial advance was a bona fide
principal amount of the specified amount or more even though
the actual unpaid balance after the advance or at any other time is
less than a bona fide principal amount of the specified
amount.
(c) If a loan made by a licensed finance lender has a bona
fide principal amount of the specified amount or more, the fact
that the transaction is in the form of a sale of accounts, chattel
paper, goods, or instruments, or a lease of goods, or in the form of
an advance on the purchase price of any of the foregoing, shall not
be deemed to affect the bona fides of the amount thereof.
(d) For the purposes of this section, "the specified amount" means
five thousand dollars ($5,000).
(e) For the purposes of determining whether the loan amount
exceeds a regulatory ceiling, the "bona fide principal amount" shall
not be comprised of any charges or any other fees or recompense
specified in Sections 22500, 22501, and 22601. This section is
intended to define the meaning of "bona fide principal amount" as
used in this division solely for the purposes of determining whether
the loan amount exceeds a regulatory ceiling, and is not intended to
affect the meaning of "principal" for any other purpose.
amended to read:
22330. No licensee shall take a deed of trust, mortgage, or lien
upon real property as security for any loan of a bona fide principal
amount of less than five thousand dollars ($5,000) made under this
division, except any lien as is created by law upon the recording of
an abstract of judgment.